BARBARA MOORE ‒ NYA MEMBER SPOTLIGHT
After a decades-long investment banking career, NYA Board member Barbara Moore began early-stage investing in 2009 and joined New York Angels in 2014. As a CFA® Charterholder, Barbara also chairs the investment committees of pension funds and endowments, deploying their funds in more traditional asset classes. She shares her thoughts on the depth of her colleagues’ expertise at NYA, key factors that influence her investment decisions and advice for founders pitching to investors.
How did you meet New York Angels? Why did you choose NYA?
While I was angel investing independently and through other groups, an existing NYA member brought me to one of NYA’s monthly investment Forums. After attending Forum and meeting dozens of NYA members, it was readily apparent that NYA brings empathic expertise to a broad range of founders across diverse verticals. NYA members are subject matter experts in their fields and keenly focused on helping young companies to grow and avoid developmental pitfalls. NYA members’ experience is comprehensive – among others, we include exited founders, C-suite executives from technology, finance, media, marketing and PR firms, and former M&A bankers and lawyers.
There is also tremendous collegiality among our members, underpinned by a desire to help founders before, during and after our investment in their companies, by intellectual curiosity and by respect for the skills each colleague brings to the diligence and mentoring processes.
Finally, the breadth of companies applying to NYA means that the deal flow to be vetted for our Screening sessions represents a larger opportunity set than that enjoyed by many other angel groups in the country. Companies apply to us from a variety of sources, including 1) referrals from our members, 2) referrals from teams of our existing portfolio companies 3) relationships with accelerators and tech transfer offices at universities, 4) our network of VC firms and angel groups and 5) our participation in conferences and other early- and mid-stage investing events.
What has been your most memorable experience as a New York Angel?
There have been many memorable experiences with NYA, and all of them arose when I was either on the Board of Directors or the Advisory Board of a company, truly involved in its operations. Whether structuring and negotiating transactions, interpreting data from marketing trials, choosing among candidates to expand a team or framing the decision processes for a major capital expenditure, there is no substitute for being an “operating partner” with the founder and team and bringing perspective from prior companies to a nascent entity.
What factors influence whether you will invest in a company?
Paramount to any investment decision is a thorough understanding of the character and experience of the team. The only certainty in angel investing is that the best-laid plans will be amended by reality. The team needs to be able to pivot as new information becomes available when the product is further developed or extended, the market is explored, the customers provide feedback, the macroeconomic conditions change, etc. In navigating these pivots, it is critical to have a team that is “coachable” – open to perspectives and advice from those who’ve been down similar paths in the past.
After becoming comfortable with the team, I am attracted to products that improve efficiency or satisfy a need, rather than a want. B2B SaaS products that provide demonstrable ROI to the customer are compelling. A few of the use cases of products that have been successful investments include: digitizing currently analog processes, simplifying an existing process by removing an intermediary or rendering one of a current series of steps obsolete, providing an existing product or service more economically or seamlessly, or delivering a medical device or service that meets a currently-unaddressed need or improves the life of patients or efficacy of clinicians.
Finally, angel investing carries a high degree of risk. The structure of the investment (equity or debt or other), the current valuation and the realistic potential exit value need to deliver a projected return and investor rights commensurate with that risk.
What do founders like most about working with you?
The CEOs and teams with whom I work sometimes compare notes when we gather at NYA or industry events, and they have a pretty uniform response to this question. I’m told that I am respectful of the time constraints on founders and prefer to get directly to the problem and begin working on a solution. I am very fortunate to have warm relationships with my founders - a few dinners and lunches scattered among the focused meetings create balance and ultimately yield productive insights.
What differentiates companies that you see at Screening who proceed to Due Diligence versus those who do not?
On a fundamental level, the valuation and deal structure are often go/no-go decisions for us to proceed to Due Diligence. Having too high a valuation for an early round puts a target on the founder’s back for the next round. Future investors like to see a step-up in value that is warranted by the milestones met over the course of the prior financing. A “down round”, or decrease in share price as a result of the next lead investor’s valuation determination, is something to be avoided whenever possible. The deal structure moves forward much more easily if it is preferred equity (first choice) or a convertible note. Less-structured proposals such as SAFEs or KISSes are harder sells.
A team’s in-depth knowledge of the product’s market, and experience of various team members in that product’s industry vertical, is critical. During our Q&A, we are surprised when founders are not aware of a relevant competitive company (or two). We shouldn’t know the players in the industry better than the team. Another issue that can be a disappointment is a team noting that “we have no competition”. There is always competition – if not in the same form as the company’s product, it’s whatever is currently in place, which the product would be replacing. What’s the cost, efficacy, and/or ease of use improvements for the customer with this new product or service versus the status quo?
With a reasonable valuation, a round size that is thoughtfully projected to provide a runway for 12-18 months (the latter being preferable in today’s macroeconomic environment), an industry-standard investor rights package in an equity or debt offering, and a knowledgeable, experienced team, a company is far more likely to move forward with us into the due diligence process.
What advice would you give founders who are starting to fundraise?
Founders should spend time telling the story of their company (development timelines, marketing plans, product extensions, pricing models, etc.) through their financial projections and determine what their negative cash flow will be for the next 18 months, to ballpark their round size. It is also critical to determine what valuation is warranted by their traction to date and the stage of their product development.
Dilution considerations often mean that it may be better to raise a smaller round ($1M to $2M) at a reasonable valuation and achieve milestones during the runway that enable a larger round (or another tranche of the same size) at a higher valuation in a year or so. On a net basis, the average dilution for the total raise is often lower than the results achieved by going out with a $4M to $5M round before sufficient traction has been established to warrant a valuation worthy of such a large raise. Using this two-tranche strategy will also enable the founder to close rounds more expeditiously and get back to running the company.
As founders meet with prospective investors, they should use the pitching process to learn from the questions that investors ask. By continually improving their pitch deck to reflect the thoughtfulness of these questions, they can leave more time for deeper questions in initial investor Q&As since the basics will already have been covered.
The CEO should always participate in the pitch. Adding other team members is helpful to demonstrate the depth of the team, but the CEO should be directing the presentation, opening and closing it, and be available for the Q&A thereafter to demonstrate total command of the subject matter.
What do you think is predictive for founders’ success in delivering a successful exit?
The founder needs to build a team that is capable of executing on the founder’s initial efforts and vision – leaders in the product, marketing, sales, finance and operations space may need to be found, depending upon the degree of commercialization contemplated in the exit plan. A successful exit without excellent execution is challenging.
A financial buyer (VC or PE firm, typically) is one path to exit, but a strong fit of the startup’s product with a strategic acquirer can often yield a synergistic and rewarding transaction. Long before an exit would occur, the founder of the startup should understand the potential acquirer(s) in the space. Developing deep knowledge of the benefits of the founder’s product to a given acquirer is critical – can the potential acquirer replicate the product? Does it make sense for the acquirer to follow that path, given time, expertise and capital expenditures required to do so? Does the acquirer have a competitor in the space that already has a capability similar to the startup’s, so the acquirer needs/wants to catch up? Or would an acquisition of the startup give the acquirer an edge in its competitive space?
Beyond the identification of the potential acquirers as entities, the founders should understand to whom they need introductions at these strategics – is there a Corporate Venture team? And/or is there an SVP that would employ the product who can be the Company’s champion within the Acquirer?
Finally, at revenue levels over $10M to $15M annually, retaining an investment banker with expertise and a network in the relevant vertical(s) will expand the pool of potential acquirers, potentially resulting in a competitive situation which will optimize proceeds and terms.
